• 1. 
    Which of the following are true of employee stock options?

  • They are commonly valued as though they are regular American options
  • They are commonly valued as though they are regular American options.but with a reduced life
  • They are commonly valued as though they are regular European option
  • They are commonly valued as though they are regular European options but with a reduced life
  • 2. 
    What term is used to describe losses shareholders experience because the interests of managers are not aligned with their own?

  • Agency costs
  • Backdating scandals
  • Dilution
  • Income statement expense
  • 3. 
    What is the difference between incentive stock options (ISOs) and non-qualified stock options (NSOs)?

  • ISOs have their own specific rules in the Internal Revenue Code
  • ISOs confer better tax treatment if the employee meets certain requirements
  • Exercising ISOs can subject the employee to the alternative minimum tax
  • All of the above
  • 4. 
    The exercise price of your vested options is $21.83 a share. The stock price is $23.18. Your options are:

  • Underwater
  • Underpriced
  • In the money
  • Worthless
  • 5. 
    Which of the following was true about employee stock options prior to 1995?

  • The options never had any affect on a company's financial statements
  • The value of options which were at-the-money when issued had to be expensed on the income statement
  • The value of options which were at-the-money when issued had to be reported in the notes to the financial statements
  • Options which were at-the-money when issued did not affect a company's financial statements
  • 6. 
    Which of the following is NOT usually true about employee stock options?

  • There is a vesting period
  • They can be sold to other employees
  • They are often at-the-money when issued
  • Their value is currently a charge to the income statement
  • 7. 
    How will you know for certain that your unexercised options will soon expire?

  • You are close to mandatory retirement age
  • Your company notifies you in writing
  • Your company's broker notifies you by email with the exercise forms
  • None of the above. It's your responsibility to check your grant agreement and understand the stock plan rules
  • 8. 
    Which order of events is accurate for most stock options?

  • Vesting, grant, exercise
  • Grant, exercise, vesting
  • Vesting, exercise, sale
  • Exercise, vesting, sale
  • 9. 
    What is an employee stock option?

  • An option to be paid in stock instead of cash
  • A right to buy company stock at a guaranteed discount for a fixed term
  • A call option on a company‚Äôs stock granted by the company to its employees
  • A grant of company stock as a salary bonus
  • 10. 
    Which of the following can senior executives not use to exercise stock options?

  • Vested shares of restricted stock
  • A loan from the company
  • Shares of company stock bought on the open market
  • A personal check
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